Australian Clinical Labs (ASX:ACL) share price falls despite tripling profits and beating guidance

This healthcare share had a strong half..

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Key points

  • Australian Clinical Labs was in fine form during the first half
  • The pathology company tripled its profits and beat its upgraded guidance
  • Strong demand for COVID testing services helped drive its growth

The Australian Clinical Labs Ltd (ASX: ACL) share price dropped with the market on Thursday despite the release of a strong half year update from the pathology company.

The company's shares ended the day 3.5% lower at $4.85.

Australian Clinical Labs share price lower despite strong growth

  • Total revenue up 61.2% to $538 million
  • EBITDA up 112.1% to $239.3 million
  • Net profit after tax up 200% to $130.3 million
  • Fully franked interim dividend of 12 cents per share

What happened during the first half?

For the six months ended 31 December, Australian Clinical Labs delivered a 61.2% increase in revenue to $538 million. This strong growth was driven by significant demand for COVID testing and a rapid and substantial increase in capacity to capture it.

This was also supported by modest growth from its non-COVID operations, which reported a 2.8% increase in revenue over the prior corresponding period.

Thanks to significant operating leverage, the company's EBIT margin increased from 20.5% to 35.5%, which ultimately underpinned a net profit after tax of $130.3 million. This was triple what it achieved a year earlier and ahead of its upgraded guidance of $116.3 million to $128 million. It was also 4% ahead of consensus estimates.

Management commentary

Australian Clinical Labs' Chief Executive Officer and Executive Director, Melinda McGrath, was pleased with the company's performance in a challenging operating environment..

She said: "During the past two years, Clinical Labs has played an essential role in Australia's response to COVID during what was at times a challenging operating environment. At the same time the team have delivered growth in our core business, driven operational improvements across the organisation while simultaneously completing two acquisitions. These achievements are a testament to the commitment and resilience of the ACL team."

"The strong result achieved in 1H FY22 demonstrates the value of the significant prior investment in the business which resulted in further operating leverage, efficiencies, improved productivity and increased automation and digitisation. There exist several opportunities to continue to grow the business including via our commercial offering and our established clinical trials business. We have strong foundations in technology and systems and a highly experienced performance-driven management team to execute our well-defined growth strategy."

Outlook

Due to high levels of uncertainty, no guidance has been given for the remainder of FY 2022.

However, management has provided an idea on what it expects to occur in respect to testing volumes during the second half.

It explained: "During the 2H FY22, ACL anticipates testing for COVID to continue to moderate as the response to COVID transitions to an endemic virus. The pace with which COVID testing moderates will depend on several factors including future outbreaks, new variants, vaccination take up and effectiveness and government policy relating to lockdowns and travel."

"Assuming no significant outbreaks, ACL anticipates the rebound in non-COVID testing to continue as restrictions on essential surgeries ease and hospitals return to full capacity," it concluded.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Australian Clinical Labs Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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